Hannigan and Associates is the holder of EPC 775 & EPC 776, collectively known as the Orion Coal Project which is located immediately north of the Moorlands Deposit (EPC 1738) and adjacent to the Cuesta's West Bowen Project (Figure 1). The Orion Coal Project currently has Indicated Coal Resources of 29Mt and Inferred Coal Resources of 54Mt with an additional exploration target 1 of between 80Mt - 90Mt (refer to Table 1, Table 4 & Table 5).

The Orion Coal Project will be consolidated with Cuesta's West Bowen Project creating two open pit opportunities with a coal bearing strike length of approximately 20Km. Targeting a ROM production rate of 4Mtpa over a minimum of a 20yr mine life, it provides the Company with a significant development project 14km from the existing infrastructure at the Blair Athol Mine.

Under the terms of the transaction, a $5 million deposit is payable in two tranches before 21 December 2012 and this will be funded through existing cash reserves. The balance of $13.2 million is payable before 28 February 2013. Cuesta is in advanced and positive discussions with its cornerstone investor Beijing Guoli regarding funding support for the transaction. These discussions are progressing well. The company has also secured an option of a $10 million vendor Convertible Note to fund part of the transaction should the balance of the funding not be secured on favourable terms for Cuesta's shareholders prior to settlement date.

The transaction is subject to FIRB approval and the Company will be required to seek shareholder approval to issue $10m of Convertible Notes to the vendor. The transaction is subject to a Break Fee of $500,000 if shareholder approval is not granted and the transaction does not complete.

Through its due diligence process, Cuesta has commenced a scoping study for development of the project. The project has been identified as having potential to produce up to 4 mtpa of ROM coal, based on current JORC Resources with a staged start up to minimise initial CAPEX requirements.

Open pit mining and low strip ratios in the Moorlands Deposit will result in lower start-up capital requirements. The Company will seek to identify synergies with existing mine operations in the area to deliver lower cost rail, port, power and water infrastructure solutions for the project.

Cuesta aims to complete this scoping study in Q1 of 2013. It will commence drilling in Q2 2013 and targets moving straight to completion of a feasibility study by the end of 2013/early 2014.

Cuesta Coal's Managing Director Mr Matthew Crawford commented: "This is a company transforming transaction as it brings to Cuesta a large open cut project close to existing rail infrastructure.

Importantly, it transforms Cuesta from a coal explorer to a project developer with a potentially significantly reduced timeframe and CAPEX to first coal production.

"By combining our West Bowen Project with the Orion Coal Project, we are creating a large coal project which has the potential to contain over 200mt of coal. Of particular note is the fact that these projects are located only 14 kilometres from Rio Tinto's Blair Athol Mine which is currently under care and maintenance.

"While we have the existing cash reserves and financial flexibility to fund the initial $5 million deposit payment for the Orion Coal Project, we are in advanced discussions with our cornerstone investor Beijing Guoli and other parties regarding additional funding. We are confident that we have the necessary funding support as well as the option of vendor Convertible Notes which gives us added certainty. We can also confirm that this transaction will not impact our planned exploration activities in the short term.

"Cuesta is in a unique position to continue its transformation from a coal explorer to developer/producer in the 3 to 5 yr timeframe it has set. We have a strong and cohesive partnership with our cornerstone investor Beijing Guoli who has indicated they will continue to support our growth both organically and through complementary acquisitions.

"The current market presents a number compelling acquisition opportunities and we have the financial support to add to our existing portfolio.

"Our first priority is to complete this acquisition and to add further value to the Orion Coal Project through exploration in the short term."

Mr Zheng Huaixi, who represents Beijing Guoli on the Cuesta Coal Board, added: "Beijing Guoli supports this acquisition and we are delighted with the progress Cuesta has made since its ASX listing earlier in the year. We will continue to support Cuesta's growth as the company transforms from an explorer to producer."

Transaction Summary

Under the SSA Cuesta Coal will acquire 100% of Hannigan & Associates from two un-associated vendors for a total cash consideration of $18.2m. The acquisition is subject to FIRB approval as Cuesta is considered a Foreign Entity under FATA.

The cash consideration is payable in three (3) instalments as per the schedule below;

1) An initial deposit of $2m on the date of executing the SSA;

2) A second deposit of $3m on or before the 21st December 2012; and

3) $13.2m on or before the 28th February 2013.

The Company has negotiated as part of the SSA that the 3rd instalment may be settled by the payment of $3.2m in cash and the issue of $10m vendor Convertible Notes to the vendors. The broad terms of the Convertible Notes as follows;

- Term is 18mths

- Interest rate of 9% for 12mths and 10% for the remaining period, paid quarterly

- Notes may be converted by the vendor at a 10% discount to 10 day VWAP, 50% 30 days prior to 27th November 2013 and 50% at the maturity date.

- Notes may be redeemed by Cuesta at any time by paying face value of the notes + accrued interest (no penalty interest)

- The Notes are secured against the shares in Hannigan & Associates

Cuesta Coal is in advanced discussions with its major shareholder Beijing Guoli and associated entities related to funding of the Orion Coal Project acquisition, including a sell down at project level. The Company is also assessing other funding options and will advise the market when appropriate.

Combined Orion and Moorlands Project Description

As shown in Figure 1, the Orion Coal Project (EPC 775 and 776) is located directly north of Cuesta's Moorlands deposit (EPC 1738), and is positioned to the west of the central part of the Bowen Basin.

The Orion Coal Deposit and Moorlands Deposit lie in a basin that comprises an elongate, north south trending, fault bounded graben structure and is approximately 20km long and 3km wide. The structure is filled with up to 350m of coal bearing sediment units of the Birimgan Formation and Blair Athol Coal Measures.

The Basin lies approximately 14km from Blair Athol and about 260km west of Mackay and the Port of Dalrymple Bay.

The Birimgan Formation and Blair Athol Coal Measures comprise mainly sandstone, mudstone and conglomerate, and contain up to 13 coal seams of export thermal coal quality which are designated as B1 - B13. Seams B11, B12 & B13 are the equivalents of the Monteagle, Kalbar 1 & Kalbar 2 seams which are better developed in the Moorlands Deposit.

The southern section of the Orion Coal Project has not been fully explored but significant coal intersections have been encountered. Close-spaced drilling by Cuesta in the northern section of EPC 1738 gives confidence that exploration in this southern section of the Orion area may result in significant additional resources.

Coal Resources and Exploration Targets for the Orion Coal Deposit were estimated in compliance with guidelines of the JORC Code 2004 by FG Robins of Fred Robins Geological Consulting in January 2012 and are summarised in Table 1.

Coal Resources for the Moorlands Coal Deposit were estimated by Lyndon Pass of Encompass Mining in December 2012, and are also summarised in Table 1.

Table 1 West Bowen Global Coal Resources in accordance with JORC Guidelines. The combination of the Orion Coal Project and Cuesta's Moorlands Deposit will result in a combined JORC-compliant Resource of 136.3 Mt as shown in Table 1, refer to link below to view Table.

Table 2 summarises average coal quality by seam for the Orion and Moorlands areas. Data for the Orion area have been summarised from individual borehole results which were reported by FG Robins in January 2012. Data for the Moorlands area have been summarised from recent coring carried out by the Company and compiled by Lyndon Pass of Encompass Mining.

Conceptual Mine Plan

A mine plan study for the Orion Coal Project was completed by Hannigan & Associates in July 2012.

The geological model was converted to Vulcan mining software format to produce a conceptual pit design and production schedule. The model indicated a 2.5 Mtpa ROM output for a minimum of 15yrs with an average strip ratio of 7.1 BCM/ROM tonne of coal.

Based on a preliminary assessment the Company has assumed that crushing, screening and washing similar to that previously carried out at Blair Athol would lower sulphur and increase energy content.

Crushing and screening were assumed to produce the following fractions;

The coarse product would come from the wash plant with a 90% yield to produce a 6,200 Kcal/kg(AR) thermal product. The coarse fines would bypass the wash plant and be sold as a thermal coal with a heat value of 5,800 Kg/kcal (AR).

Cuesta will complete its own Conceptual Mine Study of both the Orion Coal and Moorlands deposits in Q1 of 2013. Cuesta believes that the Moorlands deposit will add a further 1.5 Mtpa ROM at an average strip ratio of between 4:1 to 6:1 enhancing the overall economics of the West Bowen Coal Project.

Infrastructure

Future coal production from this project could be directed to the ports of Abbot Point or Dalrymple Bay, exporting either through the Newlands system or the Goonyella system. The Blair Athol loop is located 14km to the south east of the project site and a proposed rail link connecting the Galilee Basin to the existing network lies 30km to the northwest. A connection to the Queensland Rail ("QR") National Line is the preferred option.

The Goonyella rail system boundaries are Blair Athol in the in the west, Gregory Branch Junction in the south, the port of Hay Point in the east and the North Goonyella mine in the north. The nominal rail capacity is 132 Mtpa with a current capacity of 112 Mtpa. QR National Network Services are currently investing $185 M in the initial stage of Goonyella Rail Expansion Project (track duplication and Wotonga feeder station) which will lift capacity to 140 Mtpa.

The vendors of Orion have held initial discussions with QR National. Cuesta will continue these discussions with QR Network early in 2013.

Dalrymple Bay Coal Terminal (DBCT) is a multi-user facility and Queensland's largest coal port. It is currently contracted to its nameplate capacity of 85Mtpa and services mines in the Northern Bowen Basin. The current Master Plan for DBCT has development designs to 152Mtpa (which includes the development of Dudgeon Point). These plans are not currently activated or committed. The preferred expansion option for the DBCT terminal is through Dudgeon Point, as discussed below. DBCT is regulated by the Queensland Competition Authority.

Preferred developer status has been awarded to both Adani and a new wholly owned subsidiary of Brookfield - Dudgeon Point Project Management Pty Ltd (DPPM) for the development of the Dudgeon Point Coal Terminals (DPCT). In December 2011, the Queensland Government announced that Adani and DPPM had successfully been granted land allocations by North Queensland Bulk Ports Corporation (NQBP) sufficient for each to construct terminals of up to 90 Mtpa. Pending approvals and commercial negotiations, it is estimated that these developments may commence exporting in 2017.

To date no formal discussions have taken place with any of the port operators for access arrangements but the Company will aim to have these in Q1 of 2013.

To mitigate development risk for proposed rail and port infrastructure the Company is also investigating secondary market rail & port allocation for the first 3-4 yrs of production commencing in 2016. It has identified available allocation and it seeking a 6 month exclusivity period to finalise an agreement.

Cuesta Coal Limited (ASX:CQC.AX - News) listed on the Australian Stock Exchange on the 4th of May 2012 raising $20 million to find an aggressive 2 year exploration, mine scoping and feasibility study program on four key project areas in the Queensland Coal Basins.

Cuesta has assembled a diverse portfolio of thermal and coking coal exploration prospects within the Bowen, Surat and Galilee basins, the company's core projects are well situated geographically with over 11,000km2 of exploration ground in total.

Cuesta's balanced portfolio consists of a pipeline of projects ranging from advanced exploration requiring resource definition drilling, to conceptual opportunities requiring scout drilling. The projects are located in close proximity to current and future planned infrastructure.

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